May not achieve 4mt production target in CY13: Heidelberg

Sluggish demand, higher input cost and fluctuation in the value of rupee has hurt profitability of cement sector in June quarter. Situation was no different with Heidelberg Cement either. The firm swung into Rs 8 crore loss during Q1 from Rs 19 crore profit it posted in the year-ago period.

Total expenses of the company also increased to Rs 352.97 crore from Rs 275.75 crore, mainly due to costlier raw materials, power and fuel costs and freight charges. The situation may continue to be bleak in medium term. Ashish Guha, CEO and MD, Heidelberg Cement told CNBC-TV18 that the firm is unlikely to meet 4 million tonne production target for the year. “Production volumes will be in the range of 3-3.2 million tonne in current calendar year,” he added. Read This: Heidelberg swings into loss in June quarter on high spend Explaining what went wrong in June quarter, Guha said that there was no pick up in demand along with high cost of power which hurt bottomline. Prices across India remained in the range of Rs 260-Rs 290/bag. Below is the edited transcript of Guha's interview to CNBC-TV18. Q: Your bottomline was hit by much higher depreciation understandably but the margin picture too was not great this quarter. What dragged the EBITDA level? A: All kind of things. First of all there was an erosion in the net sales realisation (NSR), as the selling prices were lower. Secondly, both power and fuel costs have gone up and for us in particular as personal we had to hire people to cater to our expansion both in terms of the markets and also a bit of operations. However, in terms of our earnings before interest, taxes, depreciation and amortisation (EBITDA) we have improved a bit. The net profit is because of interest and depreciation that we made losses. So, it’s not been a promising quarter but given the circumstances where there is hardly any demand pickup our people have done a great job.

Q: What was the volume picture for the current quarter? A: Volumes went up by 22 percent but we could have gone up by 50 percent had the market been a little kind. The market is in a different mode with various reasons. In May, it was lack of labour, in June because of heavy monsoon; we have not seen that kind of rains in Madhya Pradesh in the last ten years and Uttar Pradesh also a bit affected by the monsoons. Q: That is a seasonal factor which occurs every year- but is there anything unusual about the demand slow down this time around in terms of the environment? A: Last year, the monsoons came in August and this time it came in early June. Yes, it is seasonal, but the months are changing every year so it is difficult to compare apples to apples. There is no infrastructure pick-up at all despite all the noises that have been made every where. Interest rates have gone up and therefore, individual house building is also come down, even if not come down static. So, cement demand as for six months is flattish for us. The reasons are known. No implementation of all the announcements that have being made in terms of infrastructure. Housing is suffering because of high interest rates. These are the two major factors which are dragging us down.

Q: What is the central India picture like specifically in terms of where prices are as well? A: In some markets the prices are between Rs 260 and Rs 290 and I think this is a fair range in various markets. Q: What about the markets where you are present in southern and western India? A: In the southern market, volume is about 300,000 which is very small so the retail prices are high. The dealer discounts have gone up, the freight cost have gone up, net selling prices are flat so the selling prices in Bangalore would be about Rs 300. It is same old situation in Mumbai and Pune. The prices have gone down in Pune recently and Mumbai has been static. So, around Rs 300 but retail prices does not give the right picture because there might be some hidden cost going behind that which actually does not make our realisations go higher. Q: Are you on target to meet that 4 million tonne sales target for this year? A: We have just grown 22 percent. In the first half, we have grown about 40 percent but we had to grow by 100 percent so it is way off at this point of time. I don’t think we will be able to make up for the big gap that we have. We may make up marginally, won’t be anywhere near 4 million tonne. Q: What looks like a more realistic number? A: About 3 million to 3.2 million, somewhere around that. Q: What is happening on the balance sheet side? Are you able to repay any of your debt post some of the deals that you have been striking? A: We have just taken debt last year. Our debt at the peak level should be about Rs 1,000 crore. The average cost of borrowing is about 10.25 percent. No, we have not repaid any debt as yet as our repayment starts from 2014. The restructuring is for small business which we are engage in, advance discussion with JSW Ispat to sell out so that we believe that we don’t have any significant presence there and our marginal presence does not make any sense. We are in advance discussion and I am sure in some time to come we will be able to announce on firm basis what we have done on that. Q: There has been some talk that you are doing a PE deal with Bain, any truth to that. Are you looking at off loading any equity? A: I generally do not react to rumors but since this is a quarterly call, we are not in touch with any private equity investor, as far as I know. From the group front, I am not aware of any such discussions.